On Jan. 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, averting most of the tax provisions of the fiscal cliff. The new law, among other items, permanently extends the bulk of the Bush-era tax cuts on income below $450,000 for joint filers (below $400,000 for single filers), permanently amends the alternative minimum tax, extends various tax incentive programs, and establishes a permanent maximum 40 percent unified estate and gift tax with an inflation-adjusted $5 million portable, individual exemption. Most of the law's provisions are effective as of the beginning of 2013, with some tax benefits reinstated as of Jan. 1, 2012. Starting in 2013, high-income taxpayers are subject to (i) increased income tax rates on ordinary income, dividends and capital gain; and (ii) a phase-out of itemized deductions and personal exemptions.
|2012||2013 (Joint Return)|
|Maximum Rate||Income Exceeding||Rate|
|Other ordinary income||35%||$450,000||39.6%|
|Long-term capital gain||15%||$450,000||20%|
The maximum 2013 federal income tax rates for joint filers (excluding the impact of any phase-out of itemized deductions and personal exemptions) imposed on net investment income are:
Medicare tax on net investment
income above threshold
|2013 maximum rate||43.4%||23.8%||23.8%|
2012 2013 (Joint Return)
Limitations Apply When Income Exceeds:
|Phase-out personal exemptions||No restriction||$300,000|
|Itemized deductions limitations||No restriction||$300,000|
The Act includes numerous other income tax provisions, including:
Providing permanent alternative minimum tax relief by increasing the AMT exemptions amounts (indexed for inflation) retroactively to 2012.
The Act permanently retains the unified gift and estate tax exemption at $5 million (as indexed for inflation, which is $5.25 million in 2013) and permanently increases the top estate and gift tax rate from 35 percent to 40 percent. Under the Act, the generation-skipping transfer tax rate is increased from 35 percent to 40 percent and the GST exemption is $5 million (as indexed for inflation, and is $5.25 million in 2013). The Act also continues the portability feature that allows the estate of the first spouse to die to transfer his or her unused exclusion to the surviving spouse. All changes are effective for individuals dying and gifts made after 2012.
If you have questions related to the new 2013 income/Medicare taxes, the other income tax provisions of the Act, or other income tax issues, please contact Michael J. Donohue (firstname.lastname@example.org or 214.999.4231) in Gardere's Dallas office, James Howard (email@example.com or 713.276.5391) in Gardere's Houston office, or any other member of the Gardere Tax Team.
Any questions related to the estate and gift tax provisions of the Act or other gift and estate tax issues, please contact Keith V. Novick (firstname.lastname@example.org or 214.999.4238) in Gardere's Dallas office, Lawrence J. Pirtle (email@example.com or 713.276.5721) in Gardere's Houston office, or any other member of the Gardere Trust and Estate Planning Team.